Guest column: Beyond the Mortgage

By Brandon Klein

COLUMBUS — Buying a home is one of the largest purchases many individuals will ever make, that means there’s also the potential for this experience to become one of the largest headaches, especially if consumers aren’t prepared. To help ensure Ohioans are equipped with the information they need to fully understand the full financial commitment involved with buying a home, the Ohio Department of Commerce Division of Real Estate and Professional Licensing and Ohio Department of Insurance have partnered to break down these costs before someone enters the housing market.

Knowing the various components that contribute to a monthly mortgage payment is key to making informed financial decisions and avoiding unnecessary financial strain.A typical house payment consists of the following elements: principal and interest, escrow fees for homeowner’s insurance, property taxes and private mortgage insurance (PMI), which protects the lender if you are unable to make payments on your loan. When combined, these elements can significantly impact overall affordability, especially when compared to just looking at the cost of the home itself.

“We’ve recently heard from a number of real estate agents that homebuyers have had to back out of real estate agreements in the final stages due to surprises with costs,” said Daphne Hawk, Superintendent of the Division of Real Estate and Professional Licensing. “Buying a home is one of the most significant financial commitments many people make. Having a full and complete understanding of the recurring costs, like property taxes and insurance, helps homebuyers avoid potential surprises and ensures they only commit to what fits their budget.”

Interest rates and varying tax and insurance rates across Ohio mean potential costs can fluctuate greatly from one area to another. Prospective homebuyers are encouraged to assess how each factor affects their payment and ensure their monthly housing costs don’t exceed 30 percent of their gross income. This benchmark can help to maintain financial stability and protect against overextending personal budgets.

Tips for Calculating Monthly Housing Costs

The Ohio Department of Insurance and the Ohio Department of Commerce offer the following tips to help buyers research and estimate their true house payment:

• Research interest rates: Compare rates across multiple lenders to find a competitive mortgage rate. Online loan calculators can help estimate monthly payments for different rates. Homebuyers should work with a lender to understand the rates and get preapproval before shopping for a home.
• Estimate property taxes: Access your local county auditor’s website or contact their office to identify current property tax rates in the area where you’re looking to buy. Homebuyers interested in purchasing a home should review property taxes of recently sold nearby homes to estimate potential costs.
• Understand PMI: If your down payment is less than 20 percent of the home, make sure to account for private mortgage insurance (PMI) in your calculations. PMI protects the lender if you are unable to make payments on your loan. You have the right to ask your servicer to cancel PMI on the date the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home, so make a note of when that will occur. Note, this only applies to conventional loans, not government loans.
• Shop for insurance: Obtain homeowners insurance quotes from different companies and carefully compare coverage and prices to ensure appropriate financial protection. Work with an insurance agent to determine where coverage adjustments can impact the price, and consider bundling with other insurance policies to potentially save money.

By taking these steps, homebuyers can confidently determine what they can afford and avoid taking on a commitment that risks their financial security. The Ohio Department of Insurance offers a range of educational homeowners insurance information, including a guide to homeowners insurance, available at insurance.ohio.gov. Homebuyers can also learn more by accessing the Ohio Department of Commerce’s Homebuyers Guide here or by visiting com.ohio.gov/real.